HAL has reached new highs!! What’s driving it??

India’s aeronautics and defense PSU Hindustan Aeronautics is hitting new highs as it gained 37% in a single month!!

2023 began with Hindustan Aeronautics stock declining. The stock was hovering around its support at Rs 1,200 as the Indian market was ailing from the Adani-Hindenburg fallout. Selling was rampant throughout the market, but buyers managed to keep the price above Rs 1,200.

As February began, HAL briefly broke through its support at Rs 1,200 but managed to recover shortly after that. HAL’s stock was reeling from weakness in the market as movement in the stock was minimal. However, the stock witnessed a surge in the second half of the month as talks of HAL receiving orders from the Philippines, Malaysia, Egypt, Botswana, and Argentina. 

This broke through the slowdown as the stock began climbing once again as the stock breached through its resistance at Rs 1,426.75 in early March. However, market weakness due to the US Banking crisis kept the stock from climbing further. Moreover, the Indian government announced and launched an OFS for HAL wherein it offloaded 3.5% of the company, driving the share price down below Rs 1,300.

However, buying resumed in the stock when the government announced a military order worth Rs 70,500 crore, directly benefitting military stocks like HAL. The share kept growing throughout April as it managed to breach its immediate resistance and challenge its next resistance at Rs 1,593.55.

Although it initially faced rejection from the level, the company’s plans to collaborate with General Electric to co-produce jet engines led to a buying spree as the stock surged 26% in less than 3 weeks of June. It sustainably breached the resistance at Rs 1820.35 and maintained prices over that level. However, the stock entered a phase of consolidation from thereon.

Even though Nifty breached its high and hit new highs of over 20,200, the stock was unable to break through its resistance at Rs 2,093.85. September brought about heavy selling in the stock as the stock neared its split date.

Post the split, the stock’s performance remained fairly muted as the stock moved slowly throughout the period before FIIs began dumping the stock in the second half of October. HAL lost over 7% as it briefly breached through the support at Rs 1,820.35 before recovering.

However, when November began, buying renewed in the stock as HAL’s deal with French aerospace company Safran for engine parts manufacturing renewed interest in the stock. The stock began climbing as HAL’s deal with Airbus to collaborate on an MRO facility further improved prospects as the stock breached the resistance at Rs 2,093.85 sustainably and kept climbing.

Another GoI order pushed the stock even further as the stock kept surging and made new highs consistently. The stock gained a record 30% in November alone as the stock briefly touched Rs 2,400 before declining.

However, the stock jumped over 3% in December’s first trading session as the GoI cleared a massive Rs 2.23 lakh crore defense order from HAL which included the acquisition of 97 Tejas fighter jets, 156 Prachand helicopters, and the upgrade of 84 existing Sukhoi jets! This sent the stock surging to fresh highs, touching its highest level so far!

 

What’s the future outlook??

Fundamentally, the company has been performing well. In its latest quarterly results, the company reported a 9.5% YoY and 44% QoQ revenue surge. Although the annual surge in profits came in at a meager 1.2%, quarterly profit growth came in at a staggering 52%! In May 2023, the company had an order book of Rs 81,784 crores, which is expected to be over Rs 100,000 crore today!

Technically, the stock’s RSI is at 70.40, indicating that the stock is overbought. Moreover, the stock is trading above its 5, 20, 50, 100, and 200-day averages.

After the stock reached Rs 2,850, the stock faced fierce resistance from Bears as it fell back down. Although the Bulls tried to push the price up, the Bears have been firm about tanking the price while Bulls have been trying to push it over Rs 2,815, resulting in the stock consolidating around Rs 2,815 and the development of a support level at Rs 2,737.55.

In the long run, we can see that HAL is India’s largest defense company and a PSU. On the domestic front, India-China tensions have subsided temporarily as analysts expect there to be further skirmishes along the border as India is improving its military might for the same. Moreover, Chinese aircrafts, which have poor quality, are being replaced by good quality Indian aircrafts by HAL!

On the international side, HAL is a supplier to the US for jet engines, while it also supplies radars and collaborates on aircraft with Russia, making it a key supplier to 2 out of 3 superpowers! Moreover, HAL is planning a new business division to improve its exports as it plans to target countries like several countries like Argentina, Nigeria, Egypt, and the Philippines!

According to the company’s Chairman, the company is looking for JVs with major OEMs and has a roadmap to become a significant player in the global aerospace industry! Furthermore, with India’s aim to become a defense manufacturing hub with defense exports surpassing $5 billion, HAL is set to become a direct beneficiary of the plan.

Although the RSI of the stock indicates that the stock is overbought, the positive news, its dominance in the Indian military space, and the bullish trend in the wider Indian markets indicate that the stock could reach new highs in the near term.

Moreover, with its overwhelming monopoly in the Indian aero defense, its position as India’s largest defense company, and its international acceptance combined with the growing geopolitical tensions, HAL’s prospects remain bright for the longer term.